Consumers Looking For Convenience

STRATEGIES

But First National Finds Supermarket Branches Can Be Financial Drain

Supermarket banking is taking off in Florida and many other states as consumers look for convenience.

But the strategy can be risky. Just ask officials at First National Bank of Central Florida.

The Longwood institution earlier this year was the only bank based in Central Florida to lose money. Now Martin Hartmann, president and chief strategist for supermarket branching, has resigned under pressure.

Hartmann said he is not sure what he might do, but he prefers to stay in Florida and probably in banking. He would not, however, rule out moving or entering another field.

''I want to keep my options open,'' said Hartmann, an early advocate of supermarket banking in Florida.

First National Chairman Hugh Cotton would not discuss Hartmann's departure. But he said the bank intends to pursue supermarket branching, launched by Hartmann about five years ago.

Under Hartmann's leadership, the bank was better at opening supermarket and other store branches than at raising capital to finance the expansions.

''It takes a lot of capital to grow as fast as we have grown,'' Cotton said.

Analysts say the bank's first-quarter loss had to be a major embarrassment.

Losing money is painful at any time. But to be the only bank out of 38 in Central Florida to post a loss made First National look particularly bad. And it happened as the industry overall was showing record profits.

Before he resigned, Hartmann attributed the $162,000 loss to the opening of three supermarket branches in January. That brought the number of in-store branches to 22.

Opening new branches, even small ones in supermarkets, causes at least a temporary drain as it increases operating expenses and boosts assets but not capital.

The bank's capital-to-assets ratio, a key indicator of health, was getting too low for regulators, Cotton said. It had dipped to 5.1 percent late in 1995, lowest among the banks based in the region.

The bank was encouraged by regulators to sell some of its loans. That kept the bank's capital ratio above the critical 4 percent level that regulators like to see. But it also reduced profitability and led to the loss.

''We sold over $45 million worth (of loans), and those were good loans making good money,'' Cotton said. ''If we could keep our loans, our earnings would go off the chart.''

The financial picture has since improved a bit, with the bank breaking even in the second quarter and projected to be profitable in the third, Cotton said. It's capital ratio has rebounded to 5.3 percent.

This wasn't the first time First National had gone through losing quarters because of expansion, so it was no surprise to bank officials.

But the bank has been trying to raise capital through private offerings, with limited success, Cotton said. Raising capital is the only way to avoid having to sell assets, he said, if the bank wants to continue to grow.

Bank directors are mulling the possibility of making an initial public offering, possibly as soon as early next year.

Bankers in Central Florida say First National, with its existing capital, has gone about as far as it can in supermarket branching. So Hartmann's expertise is no longer as valuable.

That could explain why Hartmann is downplaying his connection to supermarket banking as he looks for a job.

''I don't want to be stereotyped,'' Hartmann said. ''There are a lot of different delivery systems out there. You have to be flexible.''

Supermarket banking is an important niche, he said, but people will gradually do more of their banking from home via personal computers and the telephone.

Hartmann once was ahead of his time.

As regional president for Southeast Bank from 1988 to 1992, he helped open branches in Gooding's supermarkets.

When First Union Corp. acquired the assets of Southeast and decided not to keep the supermarket branches, Hartmann moved to First National and took the nine existing supermarket branches with him.

In a little more than four years, Hartmann added 13 outlets at Gooding's, Kash N Karry and Wal-Mart stores.

But now major banks such as Barnett Banks Inc. and NationsBank Corp. are entering the arena. Barnett is teaming with Publix Super Markets Inc. in Florida and NationsBank has ties to Winn-Dixie Stores Inc. (SunTrust Banks Inc. has an alliance with Publix in Georgia.)

Another major player to wade into supermarket banking in Florida is First of America Bank-Florida in Tampa. It is owned by First of America Corp., a $22 billion holding company based in Kalamazoo, Mich.

First of America plans to open eight branches in Orlando-area Albertson's stores by the end of the year.

BankAtlantic, a thrift based in Fort Lauderdale, also has made a push into Central Florida, with a minibranch in a Wal-Mart SuperCenter in St. Cloud, one of eight in-store branches the thrift has statewide. BankAtlantic has plans to open another minibranch in a Kissimmee Wal-Mart SuperCenter this year.